Prospects for Renewable Energy in GCC States – Opportunities and the Need for Reform

This study explores the economic potential for, and possible caveats of, renewable energy in the GCC countries. Looking at the case of Kuwait, the authors highlight the growing potential for economic cost savings, primarily for solar photovoltaic power in the GCC states over oil-fired power generation, in the current global high-price environment for oil. The economics of solar power versus gas-fired power generation in the GCC are less obvious, though rising LNG imports by some GCC countries (chiefly Kuwait, the UAE and possibly Bahrain) are expected to improve these economics in the future. Renewable energy also entails some important caveats for the region. Highly distorted domestic energy markets that continue to price fuel at a fraction of its shadow economic cost provide few market-based incentives for utilities to switch towards renewables. The recent emphasis on the use of energy policies for renewables for the creation of ‘green’ jobs by GCC policymakers’ may increase, rather than reduce, unproductive economic sinks across the GCC states’ domestic energy industries and that would considerably dilute, if not call into question, any economic gains to be made from renewable energy in the GCC.